Guy Hands, the private equity baron, was left humiliated last night after jurors took just over four hours to dismiss his fraud lawsuit against the US bank Citigroup.

After the brief deliberations, Hands made no comment as he quickly left Judge Rakoff's courtroom in Manhattan.

Hands had accused Citi of "fraudulent misrepresentation" in his disastrous £4.2bn takeover of the British label EMI.

The lawsuit, which cost both sides millions of dollars and risked the reputations of Hands and Citigroup banker David Wormsley, was described by Rakoff as little more than "a catfight between two rich companies". But he added it was the best-argued case ever brought before him.

Hands had claimed that his private equity company, Terra Firma, was tricked by Wormsley into the 2007 auction. Citigroup claimed Terra Firma's legal action was only brought to reduce the £2.5bn debt it owes the bank following the acquisition – regarded as one of the worst in City history. The bank's lawyers said Hands's action was "buyer's remorse".

But the jurors said they found little in Terra Firma's case to support its claim.

Outside the court, Dennis Posillico, a juror, said "there really wasn't any proof" that Citi had misled Terra Firma.

Terra Firma's lawyers hoped to win over the jury with testimony about three alleged phone calls from Wormsley to Hands on the weekend before the auction closed in May 2007, telling him rival private equity firm Cerberus was still bidding. But neither man had clear recollections of the conversations. Wormsley maintained he never misled to Hands over the auction; and all Hands could recall of one conversation was how much he wanted a chocolate biscuit. "They were just phone calls," Pasillico added, "and phone calls are not solid evidence."

He explained that he had been sympathetic to Hands until Citi's lead lawyer, Ted Wells, had offered an impassioned summation. "I felt [Hands] had a raw deal from Citi. Then I changed my mind."

Terra Firma initially claimed more than $8bn (£4.9bn) in damages from Citi on the grounds that it would not have bid if it had known there were no other bidders. But the court heard that Hands had pressured Citi into financing the deal and at one point was prepared to go 20p over the final 265p per share to secure the firm.

Terra Firma anticipated making a 20% per annum return on its £4.2bn investment; instead, the business continued to crumble. Even before the deal was completed, Citi knew it had made a mistake. The bank ultimately wrote off $2bn.

In court, Citi accused Hands of being unwilling to take responsibility for his mistake. Instead, he turned on his friend and adviser Wormsley, suing him and Citi for fraud in New York last December.

Both sides reached for their high-profile lawyers – David Boies, famous for hishandling of the Microsoft anti-trust and the 2001 Florida recountcases, for Terra Firma; and Ted Wells, who has defended white-collarcases including investment banker Frank Quattrone and 80s junk bondking Michael Milken, for Citigroup. Wells also successfully representedEliot Spitzer, the former governor of New York, when he persuadedprosecutors not to charge him for possible violations of federalstatutes. Boies was not present for the verdict – he had already leftfor California. But Wells told reporters: "This was a terrible ordealfor David Wormsley. He was wrongly accused. He was innocent and he's areal decent guy."

Terra Firma said it would continue to try to turn EMI around with its creditor, Citigroup. But it is widely anticipated it will be unable to meet its debt repayment obligations next March and could forfeit control of the music company to the bank.

"We are disappointed that the jury found that we did not prove that we relied on misrepresentations from Citi which caused a loss to our investors," Terra Firma said.

Citigroup, in response, issued a statement of its own: "We are very pleased that the jury reached a unanimous verdict confirming what we have said from the beginning: that Citi and David Wormsley treated Terra Firma with honesty and integrity in the EMI transaction. The jury's verdict makes clear that Terra Firma's irresponsible accusations of fraud were nothing more than a misguided attempt to gain leverage in debt restructuring negotiations."

The case has been watched by the investment banking industry for signs it should tighten policies around advising one client in a transaction while financing the other, as Citi was doing in this deal, and collecting fees from both. At one point, Citi officials congratulated each other on being paid "on both sides of the deal".

For the private equity industry, too, the case will be seen as a sobering footnote to the era of easy lending during which small firms could raise billions to purchase multi-billion dollar institutions they would find hard or impossible to run. "We believe that this was an important action to bring and that we had a responsibility to our investors to bring it," Terra Firma continued to maintain last night.

Roger Faxon, CEO of EMI Group said his company was unaffected by the ruling: "EMI has had a solid operational performance over the last six months, driven by considerable success in both recorded music and music publishing," he said. "We are wholly focused on further developing our business, and on delivering positive outcomes for the talented artist and songwriter communities we are privileged to represent."

• This article was amended on 5 November 2010. The original incorrectly stated that Citigroup's lawyer, Ted Wells "has defended white-collar criminals such as Michael Milken and Eliot Spitzer." To clarify: Eliot Spitzer was never charged with any offence. The error was introduced at an editing stage. This has been corrected.